HEALTHCARE OVERVIEW

The Healthcare Industry is a gargantuan industry that effects the life of every individual from birth until death. The healthcare sector represents 14% of GNP. The sector has also been one of the best performing sectors in the market. It's the subject of contentious debates in the congress and in the boardrooms of every company in America. The political discussion regarding healthcare rages on and the only real constant in the industry is change.

With all the twists and turns of legislation and of the competetive marketplace, the industry is ever in a state of flux. New products and drugs are coming to market on an almost daily basis. Count on us, here in The Healthcare Research Area, to keep you abreast of these developments and their impact.

Healthcare is big money. The industry ranges from the mundane (nursing homes) to the highest of technology (implantable defibrillators). Let's eye the business of it, and as Deep Throat said, "Follow the money."

When you follow the healthcare dollar you find it passing from government, individuals and corporations to managed-care organizations. From the payors it passes to hospitals, doctors, home health agencies, rehabilitation facilities, nursing homes and a host of other providers.

These providers send money to consultants and suppliers of medical products, pharmaceuticals, medical-utilization plans, medical instruments, medical information systems and laboratory facilities.

The suppliers, in turn, get their goods from the ethical and generic drug makers, the diagnostic product makers and other original equipment manufacturers. Healthcare dollars are a major force in the US economy, and there are numerous players on the stage, all of which we will follow closely in this forum. We have the able assistance of MF MedInfo in the healthcare informatics area, MF Health in the medical delivery (hospitals, managed care and other providers) area and MF Keys to keep us abreast of the news in the healthcare sector.

Together, let's treat the Healthcare Industry as if it were its own stock market. The group so diversified that there are "hot" and "cold" subsectors at every point in time. And this gives us an opportunity to cover both companies which have momentum and high growth as well as companies whose prices are depressed below fair value and ripe for a turnaround.

This year the subsector with the highest relative strength has been the Outpatient and Home Care sector, which include companies like Lincare(OTC:LNCR), Apria (OTC:APRA), and Chad Therapeutics <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX:CTU)") else Response.Write("(AMEX:CTU)") end if %>. Ethical Drug makers have also outperformed the market with companies including Merck <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MRK)") else Response.Write("(NYSE:MRK)") end if %>, Pfizer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:PFE)") else Response.Write("(NYSE:PFE)") end if %> and Bristol Myers Squibb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BMY)") else Response.Write("(NYSE:BMY)") end if %>. Other subsectors ahead of the S&P 500 for the past twelve months include Medical Informatics, Medical Instruments, and Medical Products.

On the other side, the lagging industries include the Health Maintenance Organizations (HMOs), Generic Drug makers and Hospital Corporations. In these lower-tier, out-of-favor stocks there are opportunities to find value.

For the most part, companies in the Healthcare Industry are priced based on earnings growth, earnings expectations, and free cash-flow. There are some notable exceptions. The major pharmaceutical companies are often priced according to return on equity. With some of the larger corporations dividend discount valuation is also useful.

In addition to traditional valuation techniques, there are intangible factors which also play a part in the market's pricing of some healthcare stocks. The "hot" new product or drug, the latest legislative proposal, and the perpetual move to cost-effective care all affect the stock prices of companies in the industry.

In this forum, any and all valuation techniques will be used to search for companies with underappreciated growth prospects and hidden value. With over 600 companies in the sector, there'll be ample opportunities to find undiscovered "gems," so let's get down to it.

The Healthcare Industry is a vibrant, changing force in the economy. The aging of the US population and the perpetual development of newer, cost-effective technologies guarantee growth in the sector for some time to come.

This area will be a forum for an exchange of ideas about healthcare in general and healthcare stocks in particular. Our goal is to improve the state of our collective "financial health" in the process. Fool on!

-MF Uptrend

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